Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

x		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2009
OR
o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from          to         

 

Commission file number 1-10879

 

 

AMPHENOL CORPORATION

 

 

358 Hall Avenue

Wallingford, Connecticut 06492

203-265-8900

 

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes x No o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o No x

 

As of July 31, 2009, the total number of shares outstanding of Class A Common Stock was 171,418,975.

 

 

Table of Contents

 

Amphenol Corporation

 

Index to Quarterly Report
on Form 10-Q

 

		Page
Part I	Financial Information
Item 1.	Financial Statements:
	Condensed Consolidated Balance Sheets as of June 30, 2009 and December 31, 2008 (Unaudited)	3
	Condensed Consolidated Statements of Income for the Three and Six Months Ended June 30, 2009 and 2008 (Unaudited)	4
	Condensed Consolidated Statements of Cash Flow for the Six Months Ended June 30, 2009 and 2008 (Unaudited)	5
	Notes to Condensed Consolidated Financial Statements (Unaudited)	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	16
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	19
Item 4.	Controls and Procedures	20
Part II	Other Information
Item 1.	Legal Proceedings	20
Item 1A.	Risk Factors	20
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	20
Item 3.	Defaults Upon Senior Securities	20
Item 4.	Submission of Matters to a Vote of Security Holders	20
Item 5.	Other Information	21
Item 6.	Exhibits	22
Signature		24

 

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PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

AMPHENOL CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)
(dollars in thousands)

 

		June 30, 2009			December 31, 2008
Assets
Current Assets:
Cash and cash equivalents		$	220,765		$	214,987
Accounts receivable, less allowance for doubtful accounts of $17,967 and $14,982, respectively		445,073			515,999
Inventories, net		449,894			512,507
Other current assets		91,209			92,371
Total current assets		1,206,941			1,335,864
Land and depreciable assets, less accumulated depreciation of $547,890 and $510,764, respectively		345,538			344,515
Goodwill		1,349,707			1,232,335
Other long-term assets		97,331			81,445
		$	2,999,517		$	2,994,159
Liabilities & Shareholders’ Equity
Current Liabilities:
Accounts payable		$	247,391		$	305,950
Accrued salaries, wages and employee benefits		60,788			59,644
Accrued income taxes		48,442			65,846
Accrued acquisition-related obligations		9,220			120,357
Other accrued expenses		71,227			82,596
Current portion of long-term debt and capital lease obligations		527			439
Total current liabilities		437,595			634,832
Long-term debt and capital lease obligations		820,581			786,020
Accrued pension and post-employment benefit obligations		169,695			161,669
Other long-term liabilities		42,918			43,069
Shareholders’ Equity:
Common stock		172			171
Additional paid-in capital		36,862			22,746
Accumulated earnings		1,611,240			1,467,099
Accumulated other comprehensive loss		(138,876		)	(140,591		)
Total shareholders’ equity attributable to Amphenol Corporation		1,509,398			1,349,425
Noncontrolling interests		19,330			19,144
Total equity		1,528,728			1,368,569
		$	2,999,517		$	2,994,159

 

See accompanying notes to condensed consolidated financial statements.

 

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AMPHENOL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)
(dollars in thousands, except per share data)

 

		Three months ended June 30,						Six months ended June 30,
		2009			2008			2009			2008
Net sales		$	685,184		$	846,817		$	1,345,196		$	1,617,531
Cost of sales		471,034			570,227			924,667			1,090,035
Gross profit		214,150			276,590			420,529			527,496
Selling, general and administrative expense		98,672			108,367			194,366			208,977
Operating income		115,478			168,223			226,163			318,519
Interest expense		(9,131		)	(9,915		)	(18,129		)	(19,814		)
Other (income) expenses, net		(382		)	134			(597		)	(348		)
Income before income taxes		105,965			158,442			207,437			298,357
Provision for income taxes		(29,140		)	(46,022		)	(53,562		)	(86,806		)
Net income		76,825			112,420			153,875			211,551
Less: Net income attributable to noncontrolling interests		(1,955		)	(2,425		)	(4,595		)	(4,088		)
Net income attributable to Amphenol Corporation		$	74,870		$	109,995		$	149,280		$	207,463
Net income per common share-Basic		$	0.44		$	0.63		$	0.87		$	1.18
Average common shares outstanding-Basic		171,317,112			175,487,646			171,251,519			176,075,131
Net income per common share-Diluted		$	0.43		$	0.61		$	0.86		$	1.15
Average common shares outstanding-Diluted		173,649,705			179,395,729			173,375,613			179,796,849
Dividends declared per common share		$	0.015		$	0.015		$	0.030		$	0.030

 

See accompanying notes to condensed consolidated financial statements.

 

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AMPHENOL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW

(Unaudited)
(dollars in thousands)

 

		Six months ended June 30,
		2009			2008
Net income		$	153,875		$	211,551
Adjustments for cash from operations:
Depreciation and amortization		47,770			45,684
Stock-based compensation expense		10,028			7,196
Net change in receivables sold		(6,000		)	—
Net change in components of working capital		76,057			(69,704		)
Net change in other long-term assets and liabilities		2,911			11,088
Cash flow provided by operations		284,641			205,815
Cash flow from investing activities:
Capital additions, net		(30,832		)	(50,503		)
Purchase of short-term investments		(593		)	(8,551		)
Investments in acquisitions		(271,578		)	(99,474		)
Cash flow used in investing activities		(303,003		)	(158,528		)
Cash flow from financing activities:
Net change in borrowings under revolving credit facilities		35,281			94,277
Purchase of treasury stock		—			(143,693		)
Proceeds from exercise of stock options		3,015			8,782
Excess tax benefits from stock-based payment arrangements		696			4,981
Dividend payments		(7,706		)	(5,317		)
Cash flow provided by (used in) financing activities		31,286			(40,970		)
Effect of exchange rate changes on cash and cash equivalents		(7,146		)	(1,196		)
Net change in cash and cash equivalents		5,778			5,121
Cash and cash equivalents balance, beginning of period		214,987			183,641
Cash and cash equivalents balance, end of period		$	220,765		$	188,762
Cash paid during the period for:
Interest		$	17,957		$	19,877
Income taxes		62,086			72,095

 

See accompanying notes to condensed consolidated financial statements.

 

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AMPHENOL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(dollars in thousands, except per share data)

 

Note 1-Principles of Consolidation and Interim Financial Statements

 

The condensed consolidated balance sheets as of June 30, 2009 and December 31, 2008, the related condensed consolidated statements of income for the three and six months ended June 30, 2009 and 2008 and the condensed consolidated statements of cash flow for the six months ended June 30, 2009 and 2008 include the accounts of Amphenol Corporation and its subsidiaries (the “Company”).  The financial statements included herein are unaudited. In the opinion of management, all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of such interim financial statements have been included.  The results of operations for the three and six months ended June 30, 2009 are not necessarily indicative of the results to be expected for the full year.  These financial statements and the related notes should be read in conjunction with the financial statements and notes included in the Company’s 2008 Annual Report on Form 10-K.

 

Note 2-Inventories

 

Inventories, net, consist of:

 

		June 30, 2009			December 31, 2008
Raw materials and supplies		$	118,284		$	130,572
Work in process		212,528			233,003
Finished goods		119,082			148,932
		$	449,894		$	512,507

 

Note 3-Reportable Business Segments

 

The Company has two reportable business segments: (i) Interconnect Products and Assemblies and (ii) Cable Products. The Interconnect Products and Assemblies segment produces connectors and connector assemblies primarily for the communications, aerospace, industrial and automotive markets. The Cable Products segment produces coaxial and flat ribbon cable and related products primarily for the communications markets, including cable television. The accounting policies of the segments are the same as those for the Company as a whole. The Company evaluates the performance of its business segments on, among other things, profit or loss from operations before interest, headquarters expense allocations, stock-based compensation expense, income taxes, amortization related to certain intangible assets and nonrecurring gains and losses.

 

The segment results for the three months ended June 30, 2009 and 2008 are as follows:

 

		Interconnect Products and Assemblies						Cable Products						Total
		2009			2008			2009			2008			2009			2008
Net sales
-external		$	621,440		$	771,112		$	63,744		$	75,705		$	685,184		$	846,817
-inter-segment		867			1,162			2,335			3,970			3,202			5,132
Segment operating income		119,743			171,625			10,059			8,729			129,802			180,354

 

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The segment results for the six months ended June 30, 2009 and 2008 are as follows:

 

		Interconnect Products and Assemblies						Cable Products						Total
		2009			2008			2009			2008			2009			2008
Net sales
-external		$	1,223,398		$	1,471,737		$	121,798		$	145,794		$	1,345,196		$	1,617,531
-inter-segment		1,509			2,044			4,440			8,071			5,949			10,115
Segment operating income		236,186			325,161			17,895			16,999			254,081			342,160

 

A reconciliation of segment operating income to consolidated income before income taxes for the three and six months ended June 30, 2009 and 2008 is summarized as follows:

 

		Three months ended June 30,						Six months ended June 30,
		2009			2008			2009			2008
Segment operating income		$	129,802		$	180,354		$	254,081		$	342,160
Interest expense		(9,131		)	(9,915		)	(18,129		)	(19,814		)
Other expenses, net		(9,461		)	(8,003		)	(18,487		)	(16,793		)
Stock-based compensation expense		(5,245		)	(3,994		)	(10,028		)	(7,196		)
Income before income taxes		$	105,965		$	158,442		$	207,437		$	298,357

 

Note 4-Comprehensive Income

 

Total comprehensive income for the three and six months ended June 30, 2009 and 2008 is summarized as follows:

 

		Three months ended June 30,						Six months ended June 30,
		2009			2008			2009			2008
Net income		$	76,825		$	112,420		$	153,875		$	211,551
Currency translation adjustments		25,788			(2,484		)	(4,244		)	12,685
Revaluation of interest rate derivatives		2,451			8,333			4,911			(1,495		)
Defined benefit plan liability adjustment		(16		)	—			(292		)	—
Total comprehensive income		$	105,048		$	118,269		$	154,250		$	222,741

 

Note 5-Noncontrolling Interests

 

Effective January 1, 2009, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 160, “Noncontrolling Interests in Financial Statements” (“SFAS 160”). SFAS 160 requires companies to classify expenses related to noncontrolling interests’ share in income below net income (earnings per share will still be determined after the impact of the noncontrolling interests’ share in net income of the Company).  In addition, SFAS 160 requires the liability related to noncontrolling interests to be presented as a separate caption within equity.   The presentation and disclosure requirements of SFAS 160 were retroactively applied.

 

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A reconciliation of consolidated changes in equity for the six months ended June 30, 2009 is as follows:

 

		Amphenol Corporation Shareholders
											Accum. Other
		Common			Additional Paid			Accumulated			Comprehensive			Noncontrolling			Total
		Stock			In Capital			Earnings			Loss			Interests			Equity
Balance as of December 31, 2008		$	171		$	22,746		$	1,467,099		$	(140,591	)	$	19,144		$	1,368,569
Comprehensive income:
Net income								149,280						4,595			153,875
Other comprehensive income, net of tax:
Translation adjustments											(2,904		)	(1,340		)	(4,244		)
Revaluation of interest rate derivatives											4,911						4,911
Defined benefit plan liability adjustment											(292		)				(292		)
Payments to shareholders of noncontrolling interest														(3,069		)	(3,069		)
Stock options exercised, including tax benefit		1			4,002												4,003
Stock compensation					85												85
Dividends declared								(5,139		)							(5,139		)
Stock-based compensation expense					10,029												10,029
Balance as of June 30, 2009		$	172		$	36,862		$	1,611,240		$	(138,876	)	$	19,330		$	1,528,728

 

Note 6-Earnings Per Share

 

Basic earnings per share (“EPS”) is computed by dividing net income by the weighted-average number of common shares outstanding. Diluted EPS is computed by dividing net income by the weighted-average number of common shares and dilutive common shares outstanding, which relates to stock options. A reconciliation of the basic average common shares outstanding to diluted average common shares outstanding for the three and six months ended June 30, 2009 and 2008 is as follows (dollars in thousands, except per share amounts):

 

		Three months ended June 30,						Six months ended June 30,
		2009			2008			2009			2008
Net income attributable to Amphenol Corporation		$	74,870		$	109,995		$	149,280		$	207,463
Basic average common shares outstanding		171,317,112			175,487,646			171,251,519			176,075,131
Effect of dilutive stock options		2,332,593			3,908,083			2,124,094			3,721,718
Diluted average common shares outstanding		173,649,705			179,395,729			173,375,613			179,796,849
Earnings per share:
Basic		$	0.44		$	0.63		$	0.87		$	1.18
Diluted		$	0.43		$	0.61		$	0.86		$	1.15

 

Excluded from the computations above were anti-dilutive shares of 7,776,030 and 2,146,200 for the six months ended June 30, 2009 and 2008, respectively.

 

Note 7-Commitments and Contingencies

 

In the course of pursuing its normal business activities, the Company is involved in various legal proceedings and claims. Management does not expect that amounts, if any, which it may be required to pay by reason of such proceedings or claims will have a material effect on the Company’s financial condition or results of operations.

 

Certain operations of the Company are subject to environmental laws and regulations which govern the discharge of pollutants into the air and water, as well as the handling and disposal of solid and hazardous wastes. The Company believes that its operations are currently in substantial compliance with all applicable environmental laws and regulations and that the costs of continuing compliance will not have a material effect on the Company’s financial condition or results of operations.

 

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Subsequent to the acquisition of Amphenol Corporation from Allied Signal Corporation (“Allied Signal”) in 1987 (Allied Signal merged with and into Honeywell International, Inc. in December 1999 (“Honeywell”)), Amphenol Corporation and Honeywell were named jointly and severally liable as potentially responsible parties in connection with several environmental cleanup sites.  Amphenol Corporation and Honeywell jointly consented to perform certain investigations and remedial and monitoring activities at two sites, and they have been jointly ordered to perform work at another site.  The costs incurred relating to these three sites are reimbursed by Honeywell based on an agreement (the “Honeywell Agreement”) entered into in connection with the acquisition in 1987.  For sites covered by the Honeywell Agreement, to the extent that conditions or circumstances occurred or existed at the time of or prior to the acquisition in 1987, Honeywell is obligated to reimburse Amphenol Corporation 100% of such costs.  Honeywell representatives continue to work closely with the Company in addressing the most significant environmental liabilities covered by the Honeywell Agreement.  Management does not believe that the costs associated with resolution of these or any other environmental matters will have a material effect on the Company’s consolidated financial condition or results of operations.  The environmental investigation, remedial and monitoring activities identified by the Company, including those referred to above, are covered under the Honeywell Agreement.

 

Note 8- New Accounting Pronouncements

 

In May 2009, the FASB issued SFAS No. 165, “Subsequent Events” (“SFAS No. 165”).  SFAS No. 165 establishes general standards of accounting for, and disclosure of, events that occur after the balance sheet date but before financial statements are issued or are available to be issued.  In particular, this statement sets forth: (1) the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, (2) the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements and (3) the disclosures that an entity should make about events or transactions that occurred after the balance sheet date.  SFAS No. 165 is effective for the interim or annual financial periods ending after June 15, 2009.  The Company adopted SFAS No. 165 on June 30, 2009, and such adoption did not have a material impact on the Company’s condensed consolidated financial statements.  The Company evaluated subsequent events through the date the accompanying financial statements were issued, which was August 6, 2009.

 

Note 9-Stock-Based Compensation

 

In May 2009, the Company adopted the 2009 Stock Purchase and Option Plan (the “2009 Option Plan”) for key employees of Amphenol Corporation and Subsidiaries.  The Company previously maintained the 1997 Option Plan (the “1997 Option Plan”) and maintains the 2000 Stock Purchase and Option Plan (the “2000 Option Plan”).  As of April 2009, all previously awarded options under the 1997 Option Plan have been exercised or forfeited, and the 1997 Option Plan has been terminated per the terms of the 1997 Option Plan.   The 2000 Option Plan and the 2009 Option Plan authorize the granting of additional stock options by a committee of the Company’s Board of Directors. As of June 30, 2009, there were no shares of common stock available for the granting of additional stock options under the 2000 Option Plan, and there were 12,323,500 shares of common stock available for the granting of additional stock options under the 2009 Option Plan. Options granted under the 2000 Option Plan and the 2009 Option Plan vest ratably over a period of five years and are exercisable over a period of ten years from the date of grant. In addition, shares issued in conjunction with the exercise of stock options under the 2000 Option Plan and the 2009 Option Plan are subject to management stockholder agreements.

 

In 2004, the Company adopted the 2004 Stock Option Plan for Directors of Amphenol Corporation (the “Directors Option Plan”). The Directors Option Plan is administered by the Company’s Board of Directors.  As of June 30, 2009, the maximum number of shares of common stock available for the granting of additional stock options under the Directors Option Plan was 200,000.  Options granted under the Directors Option Plan vest ratably over a period of three years and are exercisable over a period of ten years from the date of grant.

 

The grant-date fair value of each option grant under the 2000 Option Plan, the 2009 Option Plan and the Directors Option Plan is estimated using the Black-Scholes option pricing model. The fair value is then amortized on a straight-line basis over the requisite service periods of the awards, which is generally the vesting period. Use of a valuation model requires management to make certain assumptions with respect to selected model inputs.

 

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Expected share price volatility was calculated based on the historical volatility of the stock of Amphenol Corporation and implied volatility derived from related exchange traded options. The average expected life was based on the contractual term of the option and expected employee exercise and historical post-vesting employment termination behavior. The risk-free interest rate is based on U.S. Treasury zero-coupon issues with a remaining term equal to the expected life assumed at the date of grant. The expected annual dividend per share was based on Amphenol Corporation’s dividend rate.

 

Stock-based compensation expense includes the estimated effects of forfeitures, which are adjusted over the requisite service period to the extent actual forfeitures differ or are expected to differ from such estimates.  Changes in estimated forfeitures are recognized in the period of change and impact the amount of expense to be recognized in future periods. For the three months ended June 30, 2009, the Company’s income before income taxes and net income were reduced for stock-based compensation expense by $5,245 and $3,803, respectively, and these reductions were $10,028 and $7,442, respectively, for the six months ended June 30, 2009.  For the three months ended June 30, 2008, the Company’s income before income taxes and net income were reduced for stock-based compensation expense by $3,994 and $2,816, respectively, and these reductions were $7,196 and $5,073, respectively, for the six months ended June 30, 2008. The expense incurred for stock-based compensation is included in selling, general and administrative expenses in the accompanying Condensed Consolidated Statements of Income.

 

Stock option activity for the six months ended June 30, 2009 was as follows:

 

		Options		Weighted Average Exercise Price			Weighted Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value
Options outstanding as of December 31, 2008		11,229,837		$	25.82		6.69		$	52,850
Options exercised		(22,603	)	9.65
Options cancelled		(54,300	)	35.78
Options outstanding as of March 31, 2009		11,152,934		$	25.81		6.45		$	78,653
Options granted		3,736,500		32.01
Options exercised		(196,215	)	14.22
Options cancelled		(16,000	)	33.33
Options outstanding as of June 30, 2009		14,677,219		$	32.99		7.17		$	97,503
Exercisable as of June 30, 2009		6,993,673		$	20.04		5.27		$	89,507

 

A summary of the status of the Company’s non-vested options as of June 30, 2009 and changes during the six months then ended is as follows:

 

 

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During the three and six months ended June 30, 2009 and 2008, the following activity occurred under the1997 Option Plan, the 2000 Option Plan, the 2009 Option Plan and the Directors Option Plan:

 

 

On June 30, 2009, the total compensation cost related to non-vested options not yet recognized is approximately $72,673 with a weighted average expected amortization period of 3.95 years.

 

Note 10-Shareholders’ Equity

 

The Company maintains an open-market stock repurchase program (the “Program”) expiring on January 31, 2010 to repurchase up to 20,000,000 shares of its common stock.  The Company did not purchase any shares of its common stock under the Program during the six months ended June 30, 2009. As of June 30, 2009, approximately 1,850,000 shares of common stock may still be purchased under the Program.

 

The Company pays a quarterly dividend on its common stock of $.015 per share. The Company paid its second quarter dividend in the amount of $2,571, or $.015 per share on June 30, 2009 to shareholders of record as of June 10, 2009.  Cumulative dividends declared during 2009 were $5,139.  Total dividends paid in 2009 were $7,706, including those declared in 2008 and paid in 2009.

 

Note 11-Benefit Plans and Other Postretirement Benefits

 

The Company and certain of its domestic subsidiaries have a defined benefit pension plan (the “U.S. Plan”) covering certain of its U.S. employees. Benefits under the U.S. Plan are generally based on years of service and compensation and are generally noncontributory. Certain foreign subsidiaries have defined benefit plans covering their employees. The following is a summary of the funded status of the Company’s defined benefit plans as of the most recent actuarial valuations; for each year presented below, projected benefits exceed assets.

 

								Other Postretirement
		Pension Benefits						Benefits
		Three months ended June 30,
		2009			2008			2009			2008
Service cost		$	1,666		$	1,958		$	40		$	47
Interest cost		5,653			5,820			209			219
Expected return on plan assets		(5,749		)	(6,627		)	—			—
Amortization of transition obligation		(24		)	(27		)	16			16
Amortization of prior service cost		516			519			—			—
Amortization of net actuarial losses		1,925			1,519			193			241
Net benefits expense		$	3,987		$	3,162		$	458		$	523

 

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								Other Postretirement
		Pension Benefits						Benefits
		Six months ended June 30,
		2009			2008			2009			2008
Service cost		$	3,287		$	3,905		$	80		$	94
Interest cost		11,221			11,614			418			439
Expected return on plan assets		(11,450		)	(13,257		)	—			—
Amortization of transition obligation		(46		)	(54		)	32			31
Amortization of prior service cost		1,030			1,038			—			—
Amortization of net actuarial losses		3,837			3,038			387			482
Net benefits expense		$	7,879		$	6,284		$	917		$	1,046

 

The Company intends to make cash contributions to the U.S. Plan in accordance with minimum funding requirements but may also make voluntary cash contributions. Voluntary cash contributions to the U.S. Plan in 2009 and in future years will depend on a number of factors including performance of the U.S. Plan assets.

 

The Company offers various defined contribution plans for its U.S. and foreign employees. Participation in these plans is based on certain eligibility requirements.  The Company matches the majority of employee contributions to the U.S. defined contribution plans with cash contributions up to a maximum of 5% of eligible compensation. During the six months ended June 30, 2009 and 2008, the total matching contributions to these U.S. defined contribution plans were approximately $915 and $948, respectively.

 

Note 12-Goodwill and Other Intangible Assets

 

As of June 30, 2009, the Company has goodwill totaling $1,349,707 of which $1,276,158 is related to the Interconnect Products and Assemblies segment with the remainder related to the Cable Products segment.  For the six months ended June 30, 2009, goodwill increased by $117,372, primarily as a result of two acquisitions in the Interconnect Products and Assemblies segment made during the period. The Company is in the process of completing its analysis of fair value attributes of the assets acquired related to its 2009 and certain of its 2008 acquisitions and anticipates that the final assessment of values will not differ materially from the preliminary assessment.

 

The Company does not have any intangible assets not subject to amortization other than goodwill. A summary of the Company’s amortizable intangible assets as of June 30, 2009 is as follows:

 

		Gross Carrying Amount			Accumulated Amortization			Weighted-Average Useful Life
Customer relationships		$	63,900		$	13,900		9 years
Proprietary technology		36,900			7,700			15 years
License agreements		6,000			2,700			8 years
Trade names and other		9,200			7,000			15 years
Total		$	116,000		$	31,300		11 years

 

Intangible assets are included in other long-term assets in the accompanying Condensed Consolidated Balance Sheets.  The aggregate amortization expense for the three months ended June 30, 2009 and 2008 was approximately $3,400 and $2,400, respectively. The aggregate amortization expense for the six months ended June 30, 2009 and 2008 was approximately $6,300 and $4,600, respectively. As of June 30, 2009, amortization expense estimated for each of the next five fiscal years is approximately $12,800 in 2010, $10,800 each in 2011 and 2012, $7,600 in 2013 and $4,700 in 2014.

 

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Note 13—Long-Term Debt

 

The Company has a five-year $1,000,000 unsecured revolving credit facility (the “Revolving Credit Facility”) that is scheduled to expire in August 2011, of which approximately $814,000 was drawn as of June 30, 2009. As of June 30, 2009, availability under the Revolving Credit Facility was $186,000. The Company’s interest rate on borrowings under the Revolving Credit Facility is LIBOR plus 40 basis points. The Company also pays certain annual agency and facility fees.  The Revolving Credit Facility requires that the Company satisfy certain financial covenants. As of June 30, 2009, the Company was in compliance with all financial covenants under the Revolving Credit Facility, and the Company’s credit rating from Standard & Poor’s was BBB- and from Moody’s was Baa3. In March 2009, the Company entered into a $20,000 letter of credit facility, of which approximately $14,900 was outstanding as of June 30, 2009.

 

As of June 30, 2009, the Company had interest rate swap agreements of $150,000, $250,000 and $250,000 that fix the Company’s LIBOR interest rate at 4.40%, 4.65% and 4.73%, respectively, expiring in December 2009, December 2009 and July 2010, respectively.  The fair value of swaps indicated that termination of the agreements as of June 30, 2009 would have resulted in a pre-tax loss of $17,111; such loss, net of tax of $6,331 is included in accumulated other comprehensive loss in the accompanying Condensed Consolidated Balance Sheets.

 

Note 14- Business Combinations

 

Effective January 1, 2009, the Company adopted SFAS No. 141R, “Business Combinations” (“SFAS 141R”). SFAS 141R is applicable to the Company for acquisitions completed on or after January 1, 2009 and establishes principles and requirements for how the acquirer: (1) recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree; (2) recognizes and measures the goodwill acquired in the business combination; and (3) determines what information to disclose in the financial statements. The areas of SFAS 141R that are most applicable to the Company are: (1) SFAS 141R requires companies to expense transaction costs as incurred; (2) any subsequent adjustments to a recorded performance-based liability after its recognition are adjusted through income as opposed to goodwill; and (3) any noncontrolling interests are recorded at fair value.

 

During the six months ended June 30, 2009, goodwill of approximately $127,000 attributable to the Interconnect Products and Assemblies segment was recognized related to businesses acquired during the period, which was not significant to the Company either individually or in the aggregate.

 

Note 15—Fair Value Measurements

 

Effective January 1, 2008, the Company adopted SFAS No. 157, “Fair Value Measurements” (“SFAS 157”). SFAS 157 established a new framework for measuring fair value of financial and non-financial instruments and expands related disclosures. The Company does not have any non-financial instruments accounted for at fair value on a recurring basis. Broadly, the SFAS 157 framework requires fair value to be determined based on the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants. SFAS 157 establishes market or observable inputs as the preferred source of values. Assumptions based on hypothetical transactions are used in the absence of market inputs.

 

The valuation techniques required by SFAS 157 are based upon observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s market assumptions. These two types of inputs create the following fair value hierarchy:

 

Level 1          Quoted prices for identical instruments in active markets.

 

Level 2          Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.

 

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Level 3          Significant inputs to the valuation model are unobservable.

 

The Company maintains policies and procedures to value instruments using the most relevant data available including independent price validation for certain instruments.

 

The Company believes that the only financial instrument subject to SFAS 157 with interim disclosure requirements are derivative instruments which represent interest rate swaps that are independently valued using market observable Level 2 inputs including interest rate yield curves. As of June 30, 2009, the fair values of derivative instruments reflected a liability of $17,111.

 

The Company does not have any other significant financial or non-financial assets and liabilities that are measured at fair value on a non-recurring basis.

 

Note 16- Derivative Instruments

 

Effective January 1, 2009, the Company adopted SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities” (“SFAS 161”).  SFAS 161 amends and expands the disclosure requirements of SFAS No. 133 “Accounting for Derivative Instruments and Hedging Activities” (“SFAS 133”) requiring: (1) how and why an entity uses derivative instruments; (2) how derivative instruments and related hedged items are accounted for under SFAS 133 and its related interpretations; and (3) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows.

 

The Company is exposed to certain risks related to its ongoing business operations.  The primary risk managed by using derivative instruments is interest rate risk. Forward interest rate swap agreements are entered into to manage interest rate risk associated with the Company’s variable-rate borrowings.

 

SFAS 133 requires companies to recognize derivative instruments as either assets or liabilities at fair value in the Condensed Consolidated Balance Sheets.  In accordance with SFAS 133, the Company designates forward interest rate swap agreements on variable-rate borrowings as cash flow hedges.

 

As of June 30, 2009 and December 31, 2008, the Company had the following derivative activity related to cash flow hedges:

 

				Fair Value
		Balance Sheet Location		June 30, 2009			December 31, 2008
Derivatives designated as hedging instruments under SFAS 133:
Interest rate contracts		Other accrued expenses		$	6,950		$	12,053
Interest rate contracts		Other long-term liabilities		10,161			12,904
Total derivatives designated as hedging instruments under SFAS 133				$	17,111		$	24,957

 

For the three and six months ended June 30, 2009, a gain of $2,451 and $4,911, respectively, was recognized in accumulated other comprehensive loss associated with interest rate contracts.  No gain or loss was reclassified from accumulated other comprehensive loss into net income during the period.

 

As of June 30, 2009, the derivatives of the Company were considered effective hedges as defined in SFAS 133.

 

Note 17 – Off-Balance Sheet Arrangement – Accounts Receivable Securitization

 

A subsidiary of the Company has an agreement whereby the subsidiary can sell an undivided interest of up to $100,000 in a designated pool of qualified accounts receivable (the “Agreement”). The Company services, administers and collects the receivables on behalf of the purchaser. The Agreement includes certain covenants and provides for various events of termination and originally expired in July 2009.  The Agreement was amended and extended in May 2009 and will expire in May 2010.  Due to the short-term nature of the accounts receivable, the fair

 

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